I want the Cloth to drape over the cup, but It creates gap between them
Decrease the "inner" and "outer" values from the Collision settings of the vase. 

A good value should be around 1/100th of the vase width (that you can check by selecting the vase and hitting N while in the 3d viewport: look under "dimensions") or anyway at least 1/10th of what you have now. You'll need some trial and error anyway.

PS increase the cloth Steps to ~10 and the cloth collision Quality to at least 3 or you'll risk the cloth to go through the vase.